Ansoff Matrix: Definition, Strategies and How To Use
By Indeed Editorial Team
Updated June 22, 2022 | Published October 27, 2020
Updated June 22, 2022
Published October 27, 2020
Any business that wants to grow and continue to find success will likely need to expand its strategy by focusing on growth models. Many organizations can grow their business by either expanding their offerings or entering new markets, although other ways are described in the Ansoff Matrix. This matrix helps businesses access risk and understand the advantages of their growth strategy.
In this article, we explain what an Ansoff Matrix is, describe the Ansoff Matrix growth strategies, show how to make and use this matrix and provide examples.
Read more: 7 Ways To Market a Small Business
What is an Ansoff Matrix?
An Ansoff Matrix is a tool that can help executives and marketers in an organization understand how they can grow and devise strategies for realizing more growth. The matrix combines market penetration, market development, product development and diversification, which are all growth alternatives that an organization can use to effectively grow its reach into other markets or grow its product offerings. Each of these strategies comes with a certain level of risk in implementing that organization leaders can assess before moving forward in using the strategy.
Ansoff Matrix growth strategies
The four growth strategies within the Ansoff Matrix include:
The market penetration strategy is the first quadrant of the Ansoff Matrix and provides the least risk of the four growth options. It's when an organization attempts to grow in a market it already exists in with products, services or other offerings it already has. The goal of market penetration is for the organization to increase its market share by finding new customers in the same market or selling more of its offerings to an existing customer base.
Most companies use more dynamic promotion to accomplish this goal, although the methods an organization uses can vary. A business may achieve market penetration by:
Increasing their promotional efforts
Decreasing their pricing
Running sales and specials to get new customers
Merging with or acquiring a competing business in the same market
Making product improvements to appeal more to consumers
Refining their distribution process
Read more: A Guide to Effective Marketing Techniques
Market development is the second quadrant, and it's when an organization uses its current offerings and attempts to grow into other markets. This can include expansion to other municipalities if they are a local shop, other regions, nationwide or even internationally. Whenever an organization is expanding from their current market into another where they do not yet exist, whatever that new market may be, it's a market development growth strategy.
While there is a little more risk than the market penetration growth strategy, this one has a higher chance of success if the business can increase its output without negatively affecting finances or distribution, the market they are entering is similar to the one they already have success in and its offerings are unique enough to stand apart in the new market.
With market development, a business may:
Establish different segments of its customer base
Appeal to foreign markets
Expand its customer base to include a different part of the market previously not used, such as expanding from B2C to B2B
The third segment of the Ansoff Matrix, product development, is when an organization creates new offerings for its existing market. A product development growth strategy is about as risky as the market development strategy. With this strategy, the organization will have an expanded product line that customers can choose from. As part of their product development plan, a business may:
Partner with another company to offer an additional product or to increase distribution
Buy the rights from a company to produce and sell their product
Use budget dollars to research what the market needs and develop products that will fill a void in their customers' lives
The fourth and final segment in the Ansoff Matrix is diversification, and it poses the most risk to businesses. This growth strategy involves an organization that wants to enter new markets with new products, services or other offerings. This is the riskiest because it involves an untested product in a market that you don't have any experience in.
There are two types of diversification:
Related diversification: Related diversification is when a company's new offerings complement the products they already produce or at least exist in the same sphere. For example, a company that builds computers may then make a device that hides computer cords from sight.
Unrelated diversification: Unrelated diversification is when a company's new offerings are outside of its known capabilities. For example, if a company has been making notepads and pens for 10 years but then decides to delve into producing reusable water bottles.
How to make an Ansoff Matrix
If you want to make your own Ansoff Matrix for the workplace, follow these steps:
1. Use a design tool or program
Consider using a design tool or program like PowerPoint or Photoshop to create your Ansoff Matrix. With these, you'll be able to adjust colors and create a table that's user-friendly and easy to interpret. Even without access to computer programs, anyone can produce an Ansoff matrix using paper and pens.
2. Create a table with four segments
Each segment should be the same size so that when you put them all together they form a square. Consider making each segment a different color so they are easy to differentiate from one another.
3. Label your x- and y-axes
Your x-axis is the horizontal line at the bottom or top of your matrix, while the y-axis is the vertical line. Label your x-axis as "markets," and your y-axis as "products and services." With this in place, you'll be able to create the columns and rows you need, then place the growth strategies where they belong.
4. Label your rows and columns
It's important to label your rows and columns so you can place each growth strategy in the right segment. Start by labeling one of your rows as "new" and the other as "existing." Do the same for your columns. Although you can create this in many ways, it's common for the top row and right column to be "new" and the bottom row and left column to be "existing."
5. Label each of the four quadrants
Once you have your rows and columns labeled, you can label each segment with a particular growth strategy. Here is where each should appear:
Market penetration: The market penetration segment should appear at the intersection of the existing market and existing products and services.
Market development: The market development segment should appear at the intersection of new market and existing products and services.
Product development: The product development segment should appear at the intersection of the existing market and new products and services.
Diversification: The diversification segment should appear at the intersection of new markets and new products and services.
How to use an Ansoff Matrix
Follow these steps to use an Ansoff Matrix:
1. Understand the matrix's segments
The first step in using the Ansoff Matrix is to understand what each of the four segments represents. Know the advantages and risks for each so you can move forward confident in your choice.
2. Evaluate your options
For each of the growth strategies, think about how you would implement them for your organization. Here are some examples of what you may decide for each:
Market penetration: With market penetration, you may choose to develop a loyalty program, merge with or acquire a competing company or introduce a special promotion to your existing customers.
Market development: With market development, you may expand to online sales or target a new demographic of customers.
Product development: With product development, you may choose to repackage your products to keep the attention of your current customers or develop complementary offerings that your current customers can use.
Diversification: With diversification, you may partner with a business in another market that can help you develop and distribute a new product offering.
3. Assess your risk tolerance
Each strategy in the Ansoff Matrix comes with its own set of risks, with market penetration carrying the least amount of risk and diversification having the most. During this step, write down the risks you may come across for each strategy and what you would do to resolve any issues.
4. Choose your growth strategy
Once you've evaluated your options, you should be able to choose the best one for your business. It's common for organizations to revisit the Ansoff Matrix later on when they are ready to expand even further.
Examples of an Ansoff Matrix
Here are some examples of an Ansoff Matrix in action for each of the four quadrants:
A cell phone company already exists in the market, but they want to get more sales. They may develop a family plan where members of the same family can join the same cell phone plan for a discount on all lines. The company is selling more of its smartphones to the same market where they already have success.
A fashion designer produces clothes for companies in North America but wants to go global. They may partner with manufacturers and distributors across Europe to reach another market with their same products that have found success in their current market.
A car manufacturer only produces sedans, but through the years come to realize that their customers are expanding their families and now have different needs. The company starts manufacturing SUVs to appeal to their customers. They are selling to the same market, but their product line has expanded to include the kind of vehicles their market would benefit from.
A cloud computing company traditionally sells its services to businesses and other enterprises but decides to use its expertise to build and distribute home computers to individuals and families. They are entering a new market by updating their customer base and selling a new product.
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